How Hel-e Drops Positively Affect the Operation of Credit Markets

Lowering interest rates to stimulate the economy increases credit and because credit is underpinned by financial entities this sector will grow. Stimulating the economy without lowering rates through hel-e’s will grow credit less and therefore a smaller financial sector will prevail.

Lowering rates excessively will stimulate lending, asset trading and speculation too much. In order to reduce credit towards less productive or speculative areas you need to generate stimulus while avoiding lowering rates excessively, or at all. To increase lending towards capital investment you need to increase AD because as entities become more profitable due to increased spending they become more creditworthy and therefore credit for capital investment increases. Hel-e drops increase AD while not lowering rates excessively or at all.

Lower levels of financialization and speculation will create more stable business cycles and hence motivate greater capital investment.

Higher levels of lending for investment should crowd out unproductive or speculative lending.

Higher real GDP growth will prevail under hel-e drops because the financial sector will be smaller which will alleviate the supply side of the economy. Lending will be more oriented towards capital investment and less towards asset trading and speculation having a positive effect on RGDP growth.

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